RBC worried about cash lent out to energy firms, consumers

RBC has set more money aside to cover losses related to loans made to companies and consumers hit by the oil slump. Credit/THE CANADIAN PRESS

TORONTO – Royal Bank reported a first-quarter profit that was flat from a year ago, as higher earnings from its wealth management and its main banking division were offset by weaker results from insurance and capital markets.

The bank reported net income of $2.45 billion for the quarter — flat compared to a year ago and six per cent lower than the previous quarter, when it had $2.59 billion of profit.

RBC also increased its provisions for credit losses to $410 million — an increase of $140 million, or 52 per cent — due to higher provisions in the oil and gas sector and in its personal lending and credit card portfolios.

Provisions are funds set aside to cover losses on loans that a client might default on or otherwise not pay back fully.

MORE: One way banks are coping with oil crisis? Charging you more

Barclays analyst John Aiken said that while earnings were disappointing, investors may react positively to the bank’s “increasingly realistic” view on how its energy portfolio will be impacted by lagging crude prices.

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RBC’s personal and commercial banking operations reported net income of $1.29 billion, up three per cent from a year ago.

Its wealth management division, which handles accounts for investors among other activities, had net income of $303 million — an increase of 32 per cent as the bank benefited from the inclusion of Los Angeles-based City National Bank. The acquisition closed at the end of November.

Meanwhile, RBC’s insurance division saw its net income decrease by 29 per cent to $131 million due to higher claim costs. Its capital markets profits slumped by four per cent to $570 million.